Shelly 
In a major setback, Indian government has lost arbitration to energy giant Cairn under the retrospective tax amendment to the law in a verdict that came late night on Tuesday. India has been asked to pay damages worth Rs 8,000 crore to the UK oil major. The verdict comes three months after India lost arbitration to Vodafone over the retrospective legislation.
The international arbitration tribunal has maintained that the Cairn tax issue is not a tax dispute but a tax related investment dispute. Hence, it falls under its jurisdiction. It has ruled that India’s demand in past taxes were in breach of fair treatment under a bilateral investment protection pact.
The verdict has also noted arguments by the Edinburgh-based company that the tax demand came up after Vodafone tax case, which was quashed by the Indian courts.
The order has taken note of arguments and statements by Bharatiya Janata Party leaders, while in Opposition that time over the retrospective tax amendments and the international disputes, with senior leaders like Arun Jaitley calling it ‘tax terrorism’.
Cairn had lost case at (ITAT) and the matter is before High Court over the valuation of capital gains and not the constitutionality of the tax demand.
The tax demand by India was in respect of Cairn UK transferring shares of Cairn India Holdings to Cairn India, as part of an internal group reorganisation in 2006-07. This gave rise to different interpretations on whether the UK-based company made capital gains, preceding an initial public offering (IPO) of shares by Cairn India. The I-T department had contended that Cairn UK made a capital gain of Rs 24,503.5 crore. Before the Cairn India IPO, the India operations of were owned by a company called Cairn India Holdings-Cayman Island and its subsidiaries. Cairn India Holdings was a fully owned subsidiary of Cairn UK Holdings, in turn a fully owned subsidiary of
At the time of the IPO, ownership of the India assets was transferred from Cairn UK Holdings to a new company, Cairn India. In 2006, Cairn India acquired the entire share capital of Cairn India Holdings from Cairn UK Holdings. In exchange, 69 per cent of the shares in Cairn India were issued to Cairn UK Holdings. Hence, Cairn Energy, through Cairn UK Holdings, held 69 per cent in Cairn India.
Later, in 2011, sold Cairn India to mining billionaire Anil Agarwal’s Vedanta Group, barring a minor stake of 9.8 per cent. It wanted to sell the residual stake as well but was barred by the I-T department from doing so. The government also froze payment of dividend by Cairn India to Cairn Energy; it recently agreed to lift that freeze.
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